This client alert updates our recent client alert (the “May 22 Alert”) regarding investment funds as prospective borrowers under the Term Asset-Backed Securities Loan Facility (“TALF” or “TALF 2020”). For prior Milbank client alerts regarding TALF, see our client alerts of April 9, 2020 and May 12, 2020.
In less than two weeks, the Federal Reserve Bank of New York (the “NY Fed”) will begin to accept subscriptions from investors seeking to borrow under TALF to acquire and pledge qualifying AAA-rated asset-backed securities (“ABS”). Like the TALF facility launched during the last financial crisis (“TALF 2009”), TALF 2020 is intended to support the flow of credit to US consumers and businesses by supporting the ABS market, a significant source of funding for lenders, lessors, credit card companies and other providers of credit.
Notwithstanding some investors' reservations regarding potential returns and eligibility conditions for some categories of ABS, a market has formed, and a number of major asset managers have announced private funds of $500 million or more dedicated to purchasing eligible ABS using non-recourse, non-marked-to-market financing under TALF. A private fund with $500 million in committed equity can borrow 5 to 20 times that amount, acquiring up to approximately $2.5 billion to $10 billion in eligible ABS, depending on the ABS sector.
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